If you bought a home a couple years ago, the process would have been relatively painless; even quite simple. Credit was easy, it was flowing freely, and just about anyone interested in a home loan could find a loan product to suit their needs.
Fast forward to 2009 and things aren’t quite as simple. With the near collapse of many of the nation’s banks and lenders, purchasing a new Coppell home has become a bit more complicated; not impossible, mind you, just more challenging.
What You Need to Know Before Applying for a Home Loan:
- You will need an excellent credit score. The best way to get your FICO score in check is to order a copy of your credit report from all three of the credit reporting agencies and scrutinize every detail. Immediately report any errors to the credit reporting agency and do everything you need to do to correct any credit problems. Many lenders now require a credit score of at least 720, so if your FICO score falls short, consider making the necessary changes to raise your credit score before applying for a mortgage.
- You will need at least a 20 percent down payment. Unlike a few years ago when nontraditional loans were commonplace and down payments were, for the most part, optional, today’s lenders are looking for at least 20 percent down on the purchase price of a home.
- You will need a low debt-to-income ratio. Although the exact numbers vary from lender to lender, most banks will look for a low debt-to-income ratio. This essentially means that a good portion of your income should not go towards paying off debts. Most lenders prefer a debt-to-income ratio of lower than 30 percent, so it is important to calculate your debt-to-income ratio before applying for a home loan.
- You will need a steady work history. Most lenders now require a steady work history; specifically, proof that you have been with the same employer, or employed in the same field, for at least one year. Although, once again, each lender will have different criteria regarding your employment history, it is important to not consider changing jobs or changing fields before applying for a home loan.
- You will need to be able to provide all necessary documentation. A popular loan product a few years ago was the “no doc” loan, which enabled individuals to receive mortgages and home equity loans without producing any documentation regarding income or savings. These “no doc” loans are essentially history and are instead replaced with more traditional loans which require the applicant to provide proof of income, just for starters. Be prepared to provide several months of pay stubs, your last year’s tax return and investment and savings documents.
Although the home loan process may be more difficult than it was in year’s past, an individual with great credit and a healthy down payment can snag incredible mortgage interest rates and competitive home prices in today’s real estate market.